Why your groceries, homes and rents cost more. A Critical Analysis

The Bank of Canada put out a report entitled   What drives up the price of groceries?

They could have easily simplified the title to say “What Drives Up the Price of Everything”.  Their answer is the cost of ENERGY and the cost of labour. I’m going to remind you that this report is from the Bank of Canada.. “a Crown corporation that is separate from the political process” as their website says.   

Make no mistake about it; everything from home prices, rents, cost of all goods such as shoes, pants, furniture, BBQs, phones, going out to restaurants, etc., is affected by energy costs.  It’s about time we see this impartial report by a highly recognized unbiased government entity.     

This report confirms what we already know.  Our ridiculously high energy costs are one of the biggest reasons for inflated food prices.

The report also said labor costs contributed to these costs (more on that later).  And they also mentioned weather conditions. Okay, I will concede that we can’t control the weather, much to the disbelief of so many.    But one thing we can easily control that has had a huge impact on the price of both food and real estate and housing cost is energy.

I’ll go one step further.. and this may get me in trouble with some people…

If Canada wants to control inflation, help with the cost of housing, reduce the cost of food and help Canadians with a lower cost of living, they just need to cut energy costs in half and perhaps stop or slow the Federal govt’s spending spree. 

The good news is that they can do it. But oil, gasoline and natural gas have been taboo and almost illegal to use (I’m not kidding..look at the restrictions on all energy use including Environmental, Social and Governance (ESG) that started in 2004 which has now made it’s way into Banking policies to determine whom they can do business with and Mutual Fund Manager’s stock picking decisions… we can debate the ethics of this but there’s no denying the added cost is passed down to the average consumer that can barely afford yet another tariff)..  Electricity has been trumpeted as the only solution and we must go green, go all renewable and all electric at any cost for the “greater good”.. (read some history books and tell me when else you heard doing things for “the greater good” and if this sounds familiar).

I’m not against electricity but perhaps a more controlled, slower shift with less collateral economic and mortal damage should be considered with every new restriction and policy shift.  By the way, there does seem to be a shift from these policies as more Fund Managers are realizing this course of action is affecting investor returns in a negative way and ultimately gets passed down to the small investor that cannot afford diminished Is ESG Investing in Decline?

For almost a decade now, the federal government has been punishing, penalizing and shaming anyone that dares to drive their car or heat their homes with gasoline, natural gas and oil.  We’ve been made to feel guilty for just trying to live a normal life.  We should all do our part. Hmmm, all do our part.. that sounds familiar?  (let’s not go there).

ENERGY COSTS

If we removed all the unnecessary tariffs and shaming tax or carbon tax as it’s called from energy use, and actually allowed exploration companies and oil companies to pump out more resources, imagine how much less expensive things would cost you?   Maybe poor nations would rely less on higher polluting energy sources such as coal fired plants?

How many more homes would be built and purchased because they had become affordable. More homes would ease the demand. Less demand would ease the upward pressure on home prices.  More housing supply would also take the pressure off the record high rents that we’ve been experiencing for many years.

I think we are the only country in the world that is self-sabotaging itself by not tapping into our greatest natural resources.   Canada has the second or third largest oil reserve in the world. Yet, there have been so many handcuffs put on exploration and pipelines that it’s choked off the supply to Canadians and the rest of the world.  Yet, for some reason we think it’s OK to import oil from across the ocean, then put it on railway cars across the country. This is just absurd. 

This isn’t about politics but I guess it is hard to not include it in this discussion. I don’t know about you but I’m tired of paying these ridiculously high prices to fuel my car and heat my home with natural gas (which I think is as clean an energy source as you can get).  I’m tired of paying inflated costs for  everything from restaurants to clothing to furniture which has doubled in price over the last 5 years.  

LABOURERS AND IMMIGRATION

The Bank of Canada report doesn’t say too much about labourers except to say we need labourers.. Well, uh, yeah, we know this.  They aren’t saying what everybody knows.  We’ve quadrupled the annual immigration numbers with over 1 million to 1.5 million new immigrants arriving in Canada annually over the last few years. Some say it might be even higher as there is no reliable head count.  The problem isn’t immigration, it’s that we’ve brought too many people too soon and we cannot house or offer adequate social and health services to them.  It’s put a strain on the system which impacts all of us.

We’ve also not brought in the right people for jobs that need to be filled. A few years ago I attended a great presentation by Benjamin Tal, Cibc Deputy Chief Economist. He said we brought in almost no blue collar workers into Canada.  It’s all been white collar workers and foreign students that eventually apply and get their Permanent Resident status for them and their families.  There is nothing wrong with this. I support immigration but how about we try getting the right immigration at a controlled pace?   What we have now is a disaster… and we’re paying the price as the govt scrambles to pay their enormous budget deficit..  

Taxing our way out of a deficit is not the answer.  We’re pushing a record number of successful people and businesses out of Canada.  Look more closely.  Be careful.  These aren’t just super rich people. They are people like you and me.  Honest hard working Canadians that are discouraged about the current state and future prospects of Canada.  

We need less government, not more.  Less red tape and restrictions, not more.  Let’s fix this disaster.  Reduce energy costs.  Electrification at any cost is too high a price to pay in my mind. Allow consumers to choose for themselves what is best for them. We don’t need the government to make all our decisions.  Lower energy costs and you’ll reduce the cost of just about everything..  

I was speaking with a successful, hard working Canadian as I was writing this and he said this to me… 

Why on earth would anybody make widgets here when they can do it for a fraction of the price in Mexico, Latin America, even United States considering it’s more business friendly with less red tape bureaucracy lower taxes, wages and energy costs, real estate is cheaper and rent is cheaper, ownership policies are more flexible. It goes on and on and on, etc.

Our current political regime has created an economic environment that makes it unattractive to invest in Canada or to start a business unless you’re getting huge subsidies from the feds … which is really just business being bought with taxpayers money.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114; steve@canadamortgagenews.